Wednesday, December 14, 2016

Michael
Moritz - chairman of Sequoia Capital and one of the most successful
venture capitalists in history - says a simple vision led him to invest
hundreds of millions of dollars in on-demand delivery startups.

"The
movement of goods and services and people, by easier, more convenient
means," he said in an interview. "That's a huge trend, enabled by
smartphones."

Led by
Sequoia and another blue-chip Silicon Valley firm - Kleiner Perkins
Caufield & Byers - venture investors have poured at least $9 billion
into 125 on-demand delivery companies over the past decade, including
$2.5 billion this year, according to a Reuters analysis of publicly
available data.

But that torrent of money has slowed to a
relative trickle in the last half of this year, and many VCs have lost
faith in a sector that once seemed like the obvious extension of the
success of ride-services juggernauts such as Uber.

The bulk of this year's investment -
about $1.9 billion - came in the first half of the year. Only $50
million has been invested so far in the fourth quarter, the Reuters
analysis found. Several prominent Silicon Valley venture capitalists
said in interviews that they now believe many delivery startups could
fail, leaving investors with big losses.

"We
looked at the entire industry and passed," said Ben Narasin, of Canvas
Ventures. "There is more likely to be a big, private equity-style roll
up than a venture-style outcome."

Reuters
analyzed investment in on-demand delivery startups using publicly
available data from the companies, their backers and third-party
websites including Crunchbase, PitchBook and MatterMark. The analysis
likely missed some investments because private firms and their investors
do not always disclose funding details.

Delivery
startups continue to grapple with fierce competition, thin margins and a
host of operating challenges that have defied easy solutions or
economies of scale, venture capitalists told Reuters. Widespread
discounting and artificially low consumer prices have made on-demand
delivery "a race to the bottom," said Kleiner Perkins partner Brook
Porter in an interview.

That
firm has not invested as heavily or broadly in the sector as Sequoia,
but has backed U.S. startups DoorDash and Instacart and China-based
Meican.

This year has seen
high-profile failures, including U.S. meal delivery firm SpoonRocket,
which went down in March, and PepperTap, an Indian grocery delivery
service backed by Sequoia that folded in April. DoorDash, another of
Moritz's investments, was able to close its latest venture funding round
last March only by cutting the value of its share price by 16 percent,
according to data from CB Insights.

The
entry of Uber last year into the delivery business with UberEats, for
food, and UberRush, for packages, promises to make life more difficult
for smaller start-ups. Established logistics companies including Amazon (AMZN.O) and DHL are also exploring local on-demand delivery.

Sequoia
has backed at least 14 local delivery firms, among them four in the
United States, five in China and four in India. Sequoia did not respond
to Reuters requests for a response to rising VC skepticism of delivery
firms.

Venky Ganesan, of Menlo Ventures, said the sector has no clear way to cut costs or boost revenue....MUCH MORE